When we look around for a handful of bear market stocks, it’s not hard to find them. The traditional bear market is defined simply as an asset that has fallen 20% from its highs.
Now, it depends on what we’re talking about. Something like Bitcoin (CCC:BTC-USD) or certain growth stocks can fall 20% in a day. While it will make the news, it won’t surprise too many investors.
Specifically regarding the latter, many growth stocks are now deep in bear market territory. Many of these bear market stocks — high quality or not — are down 40% to 60% or more from the high.
All the while, the S&P 500 and Nasdaq are down just slightly from the all-time highs. Not only is that frustrating for growth investors, but it also presents risk. Specifically, what happens to growth stocks if — and more realistically when — these indices correct 10% or 15% from the high?
What happens when the S&P 500 enters a bear market of its own?
Enough of the questions. Let’s look at 10 top bear market stocks to buy right now.
The Ark Innovation ETF (NYSEARCA:ARKK)
Roku (NASDAQ:ROKU)
Disney (NYSE:DIS)
Twilio (NYSE:TWLO)
Nvidia (NASDAQ:NVDA)
Advanced Micro Devices (NASDAQ:AMD)
Boeing (NYSE:BA)
PayPal (NASDAQ:PYPL)
Alibaba (NYSE:BABA)
Pinterest (NYSE:PINS)
Best Bear Market Stocks: The Ark Innovation ETF (ARKK)
First, I know people are going to go bananas over seeing the Ark ETF (ARKK) listed first and foremost. If it weren’t for Tesla (NASDAQ:TSLA) propping this one up (it’s top holding), who knows where this ETF would be trading.
We also don’t know if ARKK is done going down yet. I could see a scenario unfold where the $75 area is in play.
With all that being said though, ARKK offers a pretty solid way to diversify one’s risk when wading into growth stocks encapsulated in a bear market.
Its top holdings include Tesla, Roku (the next stock on this list), Teladoc (NASDAQ:TDOC), Coinbase (NASDAQ:COIN) and Unity Software (NYSE:U), among others.
If growth stocks bounce, you can bet that ARKK will too.
Best Bear Market Stocks: Roku (ROKU)
Investors looking for stock-specific plays shouldn’t rule out something like Roku. Not only is this a well-run company with strong growth, but it’s also actually cheap in my opinion.
Now I know everyone loves to hate growth stocks right now and that includes Roku, but this company is well-positioned in a secular growth industry.
That industry — streaming video — was strong before Covid-19 hit, only got stronger during the pandemic and hasn’t relented any of the strength it garnered over the last 18 months.
That’s even as the stock price tumbles.
One would think we saw “peak streaming” in the second and third quarters of 2020. That’s April through September of that year, amid heavy restrictions and lockdowns.
Last quarter, Roku generated 18 billion streaming hours, up 21% year-over-year (YOY). Active accounts climbed too, up 23% year over year to 56.4 million customers.
Best Bear Market Stocks: Disney (DIS)
Source: nikkimeel / Shutterstock.com
Sticking with the entertainment theme, Disney is a different beast.
Sure it has its new collection of streaming platforms with Disney+, ESPN+ and Hulu. It also has its studio unit. However, Disney has an entire hospitality business that generates incredible business.
As the restrictions and lockdowns lift (and increasingly look to be disappearing), the public will see a return to normal — and so will Disney.
The parks will be full, the cruises will be sailing and movie theaters will be open. Plus, Disney now has a massive head start with its Disney+ streaming platform, with almost 118 million customers.
It took most platforms years to top 100 million subs. Not Disney, and that’s going to set up the company for long-term success.
Down 30% from its 2021 high at the recent low and down 22% currently, this year could be Disney’s year.
Best Bear Market Stocks: Twilio (TWLO)
The next three stocks are three of my favorite tech companies and we’ll start with Twilio.
When Twilio went public, the company’s platform wasn’t clear yet. It allowed for business-to-consumer communication — mainly in the form of texting — but the value wasn’t evident. At least not yet.
The stock price was volatile and Twilio carried a high valuation. Eventually though, Wall Street picked up the value. At the same time, Twilio vastly expanded its platform and the communication methods in which businesses could communicate with its customers.
What’s left now is a wildly sticky platform and an excellent business.
Twilio is hated right now — isn’t that kind of the point during a bear market? — but its growth shouldn’t be ignored. Analysts expect 57% revenue growth this year, 32.5% growth next year and 28.6% growth in 2023.
Best Bear Market Stocks: Nvidia (NVDA)
Nvidia was once an under-the-radar company, but the stock’s explosive gains have removed any possible secrecy about its potential.
Despite the recent peak-to-trough pullback of 26%, Nvidia stock is still up more than 100% over the past 12 months. More than that though, shares are up 652% over the past three years.
The gains are what has helped the company’s market capitalization swell to more than $700 billion (and to $834 billion at the highs).
However, it’s Nvidia’s long-term growth that should keep the stock rising over the years. Analysts expect almost 60% revenue growth this year, but anywhere from 16% to 19% annual growth from 2022 to 2024.
The analysts have been far too conservative over the last few years. Will that continue to be the case?
It may be, particularly with Nvidia’s long-term secular growth drivers in play. The company’s key end markets include artificial intelligence and machine learning, cloud computing, data centers, autonomous driving, gaming and graphics, supercomputing, robotics, drones and everyone’s new favorite, the metaverse.
Advanced Micro Devices (AMD)
Like Nvidia, Advanced Micro Devices is a smaller but similar company.
It makes GPUs with a focus on graphics, but it’s finding its products span many similar end markets as Nvidia. Tesla is even using AMD chips.
While the company doesn’t generate the same margins that its “big brother” does, it still has impressive growth.
Like Nvidia, the analysts have been wildly conservative with their consensus expectations. Thankfully, we have written extensively about it (for both companies) over the last six months.
Obviously, we can’t expect AMD to continue growing like it has over the last 18 months or so. But for the long-term, AMD should be a solid performer given the secular growth nature of its end markets.
Boeing (BA)
Boeing was dealt a double-whammy, with the fallout from its 737 MAX plane and the impact of the coronavirus.
Admittedly, half of that is Boeing’s fault, but as we sit at the two-year mark of the outbreak, one has to think Boeing has brighter days ahead.
The 737 MAX debacle has largely died down and the company has seen the plane return to service in most markets. At the same time, airline traffic is rebounding from Covid-19 and should only continue to rise from here.
Eventually, that will have airlines buying new models and when we look at Boeing now, it appears we’ve already seen the trough — both in the stock and on the order book.
Boeing stock topped in March 2019, almost a full year before the pandemic-fueled selloff in the U.S., yet the stock remains 51% below that high. I think we could finally see a rebound in Boeing this year.
PayPal (PYPL)
I enjoy hunting for high-quality growth stocks that have fallen by more than 40% from the high.
In the previous ten years, that was an actual challenge — at least when focusing on the “high quality” portion of the criteria.
Now though, everywhere you look there are stocks down 40% (or far more). However, PayPal meets the criteria in my book.
It’s not a perfect company, but down about 40% seems like overkill for what is a great company. Historically speaking, these types of dips prove to be a buying opportunity rather than a selling opportunity.
Analysts expect PayPal to grow sales roughly 18% this year, then 18% in 2022. However, estimates are slightly higher for 2023 and 2024.
A company can only grow sales at that pace for so long before the stock is rewarded.
Alibaba (BABA)
Alibaba is perhaps the most controversial stock on this list. Not only has it performed terribly, but it’s also a Chinese-based company.
Not that there’s anything wrong with China per se, but the way the country operates is quite different than here in the U.S.
If anyone ever questioned whether businesses would get too big to ignore or push back against the Chinese government, we just found out that that’s not the case.
The government manhandled Alibaba, creating headache after headache for shareholders as the stock price evaporated away years of gains. The stock suffered a peak-to-trough decline of 66% and fell from a market cap of roughly $850 billion down to $260 billion at the low.
The market made this look like a small-cap stock.
Despite all that, the company dominates in Chinese e-commerce and operates in one of the strongest economies in the world. It’s also got a dominant position in cloud computing and has great assets.
While it has suffered tremendously, it may be time for Alibaba to rebound. Plus, Charlie Munger is reportedly a buyer as well.
Pinterest (PINS)
There is not a lot of love right now for social media stocks, let alone Pinterest.
My opinion will not change the narrative here. However, I could argue that Pinterest isn’t really a social media stock. It shouldn’t be valued like some of its peers and it shouldn’t be based on the same metrics. Instead, it’s more like an image-and-project searching platform.
Customers are important, or in this case users, and the critiques in this regard have been fair.
But we’re talking about a stock that trades at just 30 times earnings, is profitable, free cash flow positive and has consensus revenue estimates calling for more than 24% revenue growth in each of the next few years (2022 through 2024).
On the date of publication, Bret Kenwell held a long position in ROKU, NVDA, PYPL, TWLO and PINS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
